In the wake of an alleged multi-crore fraud on state-run Punjab National Bank (PNB), the auditors and financial professionals on Saturday accused the central government of "diluting the bank audit system as well as power of Reserve Bank of India (RBI) for selection of auditors for auditing of banks". They also questioned how the management of banks are allowed to select the statutory auditors. "Earlier, the RBI used to appoint statutory auditors of banks. But to our utter surprise, we observed that from 2014-15, the power of the RBI to appoint central statutory auditors and branch statutory auditors was snatched by the central government and was handed over to the management of the respective banks," Association of Chartered Accountants` General Secretary Kingsuk Datta told reporters here.

Forum of Finance Professionals and Economists` General Secretary Sunil Kumar Gandhi said banks` managements were allowed to select the statutory auditors taking only nominal permission of the RBI before the appointment. "Can you imagine a situation where the examinees themselves are appointing their own examiners," he asked.

They demanded the selection of bank central auditors and statutory branch auditors should be done under the control of the RBI and not in the hands of the bank management. The association and forum also demanded the creation of a national audit board which will act as a regulatory body for appointment of auditors of private listed companies, parallel to C&AG.

They also apprehended there might be a "nexus" between the management of a particular bank and selected auditors` of the lender if the selection process continues in this way.

Criticising the Ministry of Finance`s circular dated September 26, 2012, Datta also said the Ministry of Finance directed banks that "the statutory branch audit has become routine and not much effective post implementation of CBS (core banking solution) in PSBs (public sector banks)".

"Statutory branch audit is essential and unfortunately, branches with advances of Rs 20 crore or below are not selected for statutory audit," Datta said.

In view of the alleged multi-crore bank fraud case, Gandhi said keeping "Swift" out of the core banking solution was "one of the loopholes".

Both the association and forum demanded the scrapping of the FRDI Bill, 2017.